Succession by hLuYC1X




         Russell Beesley
Financial Consultant – Rees Astley

   • The Three Key Questions
• Basic Business Protection Issues
UK Population 1                                    60m
Working Population 1                               31m
Limited Companies 2                                1.7m
Other Businesses 3                                  2m
1 National Statistics   2 Companies House   3 Datamonitor
         Market Research*
 Only 10% of small and medium enterprises
  (SMEs) have protection for their key

            *Research on behalf of Scottish
            Provident by BDRC, December 2005
          Market Research*
 Loss of a key employee through death or
  critical illness:
   21% said they would suffer a significant loss of
   27% said it would require a major re-organisation
    of their business
   19% thought the business would cease trading
           *Research on behalf of Scottish Provident
           by BDRC, December 2005
      How do business owners
       protect their business ?
•   Employ the right staff
•   Understand their customers & competitors
•   Ensure quality control
•   Exercise financial controls
•   Insure their property & equipment
Many have overlooked
             What if ……..
What if …….a partner suffers a
         heart attack
•   Can the partnership continue trading ?
•   Cost of replacing the key individual ?
•   Will partner sell to fellow partners ?
•   Can they afford to buy the partner out ?
•   How would they agree on a price !
    What if ……. a shareholding
            director dies?
• Can the company continue trading?
• Cost of replacing the key individual?
• Would the surviving spouse wish to be involved?
• Would the other shareholders want that?
• Would the surviving spouse wish to sell to a third
• Could the others prevent that!
        Business Protection

In such events the damage to the business could
be catastrophic
Business Protection resolves these issues
Business Protection Provides

Profit Protection
Business Succession
          Profit Protection
• Key person cover
• The proceeds are payable to the
  – Replace key person
  – Pay off business debt
  – Protect against loss of profits
  – Preserve value of shareholders interest
     Definition of a key person

A key person is any person whose death or
disability would have a serious effect on the future
profits and value of the business
        Business Succession
• Shareholder/Partnership Protection
• Proceeds available to buy out
   – The outgoing owner following a critical illness
   – His/her family after death
• Co shareholders/partners will use the proceeds
  to acquire that business interest
         Three Key Questions

• What type of business structure is it ?

• Why are the proceeds required & How Much?

• Who should receive the proceeds ?
       Key Question 1
   The Business Structure?
• Company
• Partnership
• Sole Trader
       Key question 2 –
Why are the proceeds required ?
• Key person cover
• Loan protection
• Partner / shareholder protection
    How Much is Required?
• Key person
    • Multiple of profits/salary
• Shareholder Protection
    • Controlling holdings
    • Minority holdings
    • Property or Investment Companies
       Key Question 3
Who should receive the proceeds?
         Loan Protection
• Insurance taken out to ensure
  repayment of a loan in the event of
  death or critical illness
• Disability Income Benefit (Income
  Protection) could be considered
• Often required on a key person by
  a lender
Potential problems for …
• The Family
  – Many shareholders/partners leave their
    stake in the business to their family, who
    may have no aptitude for the business
  – The family’s only option may be to sell the
    stake in the business (to raise cash)
  – Can they find a buyer?
  – Will the family be certain to get a fair price?
  Potential problems for …
• The Business
  – Pressure due to loss of colleague
  – Remaining shareholders/partners will want to
    maintain control of the business
  – Will they have the money? Will they be forced to
    borrow? Will they be able to borrow?
  – Will the stake in the business be OK remaining
    with the family?
  – Will they sell them to an undesirable?
  Eliminate the problems
• Three distinct elements:
  – Insurance to provide the funds to buy the
  – Set up insurance so that the funds are
    received in the right hands and free of tax
  – Ensure there is a tax efficient agreement
    between the shareholders/partners to
    buy/sell shares

– Every business should assess their current
– And any existing cover that they may have in

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